Clackamas River Water District officials learned this week that the troubled agency will lose its liability and property insurance at the end of the year because of "ongoing instability and internal conflict."

The Special Districts Association of Oregon, which provides low-cost insurance to hundreds of state agencies, said it has a "fiduciary responsibility" to protect other members from costs and liability generated by the Clackamas County water district's contentious and dysfunctional board.

In the past decade, Clackamas River Water has burned through six general and interim managers and, because of recurring accusations of mismanagement, submitted to three expensive special audits and a half-dozen ethics and workplace complaints.

It is only the second time in 20 years that the state insurance pool has dropped a special district. The Charleston Rural Fire Protection District in Coos Bay lost its insurance after board members threw chairs during meetings, filed lawsuits and frequently fired fire chiefs.

The Clackamas River Water board is nearly a mirror. An Oregonian analysis found that Clackamas River has the highest legal bills of any Portland-area water district, racking up about $1 million in the past four years – mostly over internal disputes among board members and the general manager. The district serves about 51,400 homes in Clackamas County.

In January, the Special Districts Association raised Clackamas River's insurance deductible to $50,000 and eliminated coverage for ethics and labor complaints. "All the other members in the state don't want to subsidize what's going on," explained Executive Director Frank Stratton. "I've never seen it where something is so dysfunctional."

View full sizeDan Aguayo

Two months later, a Clackamas River employee filed an Oregon Bureau of Labor and Industries complaint and a labor-related tort claim notice accusing the agency and Commissioners Patricia Holloway and Grafton Sterling of harassment. Those claims remain under investigation.

On Monday, Moore received a 90-day notice that the Special Districts Association didn't plan to renew the Clackamas River's insurance policy. "We're going to have to scramble to try to find replacement insurance," he said.

Board member Barbara Kemper was surprised the district lost all coverage, despite the previous warnings. She is concerned that employees might refuse to work, in case they are hurt on the job, and worried about other implications. "Our employees should not be put in a position where should something happen, they could be personally liable," she said.

The district already has started looking for new providers, but General Manager Moore is worried. When the agency looked for private liability coverage a few years ago, it didn't receive a single response. "Even back then, that was the reason we stayed with the special districts," Moore said.

The board's reputation has deteriorated further since then, as problems have become more well known and ratepayers and others have called for board members to resign.

In recent months, dysfunction among board members reached a stalemate. Board member Mike Cardwell resigned in July, leaving the board deadlocked 2-2 on most issues, including the appointment of a tie-breaking replacement.

The Clackamas County Board of Commissioners, the county's top governing body, began monitoring the board this summer but has taken no action.

State law allows the county commissioners to intervene if they determine Clackamas River Water is unable to perform its duties, but officials are unsure if the agency has reached that point.

In recent weeks, county Commissioner Jim Bernard has been talking to water board members and county staff. He is encouraging the board to let the county appoint a new commissioner, if not temporarily take over management.

"For one thing, they can't afford to lose their insurance, and it just seems to me that it's blowing up," Bernard said. "It's been blowing up for a long time, but it's exploding to a point where I would hope they would ask us to help out."

However, the board members must declare an impasse if they want the county to help. So far, they can't agree on that either.